Directive on Contingencies
This directive replaces:
- Accounting for Costs and Liabilities Related to Contaminated Sites, Policy on [2009-10-01]
- Contingent Liabilities of the Government of Canada and Consequential Policies with Regard to the Reporting of the Financial Position of, and Insurance Schemes Operated by, Crown Corporations, Policy on the [2009-10-01]
1. Effective date
1.1 This directive takes effect on October 1, 2009.
1.2 It replaces the following:
- Treasury Board Circular No. 1984-63 – Policy on the Contingent Liabilities of the Government of Canada and Consequential Policies with Regard to the Reporting of the Financial Position of, and Insurances Schemes Operated by, Crown Corporations as it relates to contingent liabilities only; and
- Policy on Accounting for Costs and Liabilities Related to Contaminated Sites (dated April 1, 2002).
2.1 This directive applies to departments as defined in section 2 of the Financial Administration Act.
2.2 Those portions of sections of this directive that provide for the Comptroller General to monitor compliance with this policy within departments and/or request departments take corrective action, do not apply with respect to the Office of the Auditor General, the Office of the privacy Commissioner, the Office of the Information Commissioner, the Office of the Chief Electoral Officer, the Office of the Commissioner of Lobbying, the Office of the Commissioner of Official Languages and the Office of the Public Sector Integrity Commissioner. The deputy heads of these organizations are solely responsible for monitoring and ensuring compliance with this policy within their organizations, as well as for responding to cases of non-compliance in accordance with any Treasury Board instruments that address the management of compliance.
3.1 This directive supports the objectives of the Policy on Internal Control by outlining the responsibilities of the Chief Financial Officer to establish management practices and controls for the appropriate and timely identification and reporting of all contingencies.
3.2 Contingent liabilities may result from various activities including but not limited to: obligations; guarantees; contaminated sites; arrangements with international organizations; insurance programs; and pending and threatened litigation relating to claims and assessments in respect of breach of contract, damages to persons and property and like items.
3.3 Section 63 of the Financial Administration Act requires that accounts be kept and reserves established for contingent liabilities to present fairly the financial position of Canada. In addition, section 64 of the Financial Administration Act requires that the Public Accounts of Canada include the government's contingent liabilities.
3.4 Contingent liabilities represent significant potential obligations of the Government of Canada. They are recorded as a liability in the government's and the department's financial statements when a future event confirming the existing obligation is likely to occur and the amount of the potential liability can be estimated.
3.5 Quality valuation and reporting of contingencies by departments are important functions that contribute to the fair presentation of financial position and effectiveness of financial disclosure in the government's and department's financial statements and in the Public Accounts of Canada.
3.6 The application of appropriate and established classification systems as referenced in the Policy on Management of Real Property enable the assessments of liabilities related to contaminated sites to be undertaken. When it is determined that the Government of Canada has an ongoing responsibility to restore the site for future use, a liability is reported. When it is unclear that the government is obligated to incur remediation costs, the costs are considered to be contingent liabilities.
3.7 This directive is to be read in conjunction with the Policy on Internal Control and Treasury Board Accounting Standard 3.6 – Contingencies.
3.8 This directive is issued pursuant to section 7 and 64 of the Financial Administration Act.
Definitions to be used in the interpretation of this directive are in the Appendix.
5. Directive statement
To ensure that all contingencies are appropriately managed, accounted for and reported in the Public Accounts of Canada and in the financial statements of the government and departments.
5.2 Expected Results
- Financial resources are used appropriately, based on the right authority, and losses due to waste, abuse, mismanagement, errors, frauds, omissions and other irregularities are minimized.
- Program managers understand and act on their responsibility with respect to the identification, management, mitigation and reporting of all potential liabilities.
- Contingent liabilities are supported by established methodologies that provide reasonably accurate values.
- Contingent liabilities are classified for accounting purposes across government on a consistent basis.
The Chief Financial Officer is responsible for establishing effective management practices and controls to ensure that:
6.1.1 Program managers are informed of their responsibility with respect to the identification, management, mitigation and reporting of all potential liabilities;
6.1.2 The financial information concerning departmental sites contained in the Federal Contaminated Sites Inventory is complete and accurate;
6.1.3 A follow-up of all departmental contingencies is performed on a quarterly basis to ensure validity of information. All information considered pertinent by the chief financial officer is to be reported to the Receiver General;
6.1.4 Appropriate records are kept to provide an adequate audit trail; and
6.1.5 The reporting and disclosure of contingent liabilities is done prudently to ensure the Government of Canada's position is not prejudiced.
Program managers are responsible for ensuring that:
6.1.6 Sound valuation of contingent liabilities, which includes an assessment of the likelihood of a liability and quantification of amount, is provided by subject matter experts, and is supported by established methodologies that provide reasonably accurate values;
6.1.7 A legal opinion is obtained prior to reporting a contingent liability for pending litigation cases and any other potential claim requiring legal assistance. An updated legal opinion is to be solicited at year-end while the status of significant claims is to be updated more frequently. Based on information available to counsel at the time, legal advice and information will include, where possible, an assessment of the likelihood of an adverse outcome and legal counsel's best estimate of the potential loss to the government (i.e., "amount at risk") and the amount claimed by the plaintiff, as applicable;
6.1.8 Corrective measures are put in place in a prompt and efficient manner to remedy deficiencies in the identification, management, mitigation, assessment of probability, valuation and reporting of contingencies.
6.2 Monitoring and reporting requirements
6.2.1 Chief financial officers are responsible for supporting their deputy head by overseeing the implementation and monitoring of this directive in their departments, bringing to the deputy head's attention any significant difficulties, gaps in performance or compliance issues and developing proposals to address them, and reporting significant performance or compliance issues to the Office of the Comptroller General.
6.2.2 The Comptroller General is responsible for monitoring departments' compliance with the requirements of this directive and conducting a review within five to eight years.
7.1 In instances of non-compliance, deputy heads are responsible for taking corrective measures within their organization with those responsible for implementing the requirements of this directive.
7.2 In support of the responsibility of deputy heads to implement the Policy on Internal Control and related instruments, chief financial officers are to ensure corrective actions are taken to address instances of non-compliance with the requirements of this directive. Corrective actions can include requiring additional training, changes to procedures and systems, the suspension or removal of delegated authority, disciplinary action, and other measures as appropriate.
7.3 Individuals are reminded that sections 76 to 81 (Civil Liabilities and Offences) of the Financial Administration Act as well as sections 121 (Frauds against the Government), 122 (Breach of Trust), 322 (Theft) and 380 (Fraud) of the Criminal Code may apply.
8. Roles and responsibilities of government organizations
This section identifies other significant departments with respect to this directive. In and of itself, it does not confer an authority.
8.1 Department of Justice Canada is responsible for providing legal advice and information to departments on pending litigation cases in order to assist in the reporting of contingencies.
8.2 Environment Canada is responsible for providing expert advice and guidance on ecological risks associated with contaminated sites.
8.3 Public Works and Government Services Canada is responsible for issuing operational instructions and providing advice and interpretation on the Government-wide Chart of Accounts for Canada.
8.4 Treasury Board Secretariat, Office of the Comptroller General is responsible for development, oversight and maintenance of this directive and for providing interpretative advice.
9.1 Other relevant legislation and regulations
- Financial Administration Act sections 63 and 64
9.2 Related policy instruments and publications
- Treasury Board Accounting Standard 3.6 - Contingencies
- Treasury Board Accounting Standard 1.2 - Departmental and Agency Financial Statements
- Receiver General Manual – Chapter 15, "Public Accounts Instructions"
- Directive on Claims and Ex Gratia Payments
- Directive on Losses of Money and Property
- Directive on Loans and Loan Guarantees
- Policy on Management of Real Property
- Reporting Standard on Real Property
- CICA Public Sector Accounting Handbook – Sections 3300 Contingent Liabilities and 3310 Loan Guarantees (access restricted to members)
- Policy on Decision Making in Limiting Contractor Liability in Crown Procurement Contracts
10.1 Please direct enquiries about this directive to your departmental headquarters. For interpretation of this directive, departmental headquarters should contact:
Government Accounting Policy and Reporting Division
Financial Management and Analysis Sector
Office of the Comptroller General
Treasury Board Secretariat
Ottawa ON K1A 0R5
10.2 For information related to Public Accounts reporting, departmental headquarters should contact:
Central and Public Accounts Reporting Directorate
Central Accounting and Reporting Sector
Public Works and Government Services Canada
Gatineau, QC K1A 0S5
Appendix — Definitions
- arrangements with international organizations (arrangements avec des organisations internationales)
- Are agreements with international banks and other international organizations to which Canada provides loans, advances or subscriptions of share capital as a measure of assistance to developing countries. Some of these agreements involve callable share capital, which represents that portion of capital subscriptions made to institutions that Canada could potentially be required to pay-in. This callable share capital is subject to call (i.e., require payment) by foreign banks in the event that they are unable to meet their obligations. Other agreements involve callable share capital related to paid-in shares to which Canada has committed to subscribe to at some future date.
- audit trail (piste de vérification)
- Includes the elements that allow tracking of a complete process. These includes delegation of authorities' matrices, user profiles, data and files required to reconstruct the sequence of events and the transactions processed.
- contaminated site (site contaminé)
Is a site where substances occur in concentrations that:
- are above background levels and pose, or are likely to pose, an immediate or long-term hazard to human health or the environment; or
- exceed the levels specified in policies and regulations.
- contingency (éventualité)
- Is an existing condition or situation involving uncertainty as to possible gain or loss to an organization that will ultimately be resolved when one or more future events occur or fail to occur. That uncertainty will ultimately be resolved when one or more future events not wholly within the department's or agency's control occurs or fails to occur. Resolution of the uncertainty may confirm the acquisition of an asset or the reduction of a liability or the loss or impairment of an asset or the incurrence of a liability.
- contingent gain (gain éventuel)
- Is a potential gain or possible recovery that may be realized when one or more future events occur or fail to occur.
- contingent liability (passif éventuel)
- Is a potential liability that may become an actual liability when one or more future events occur or fail to occur.
- established methodologies (méthodologie établies)
- Is a particular procedure or set of procedures used and accepted by experts in a specific discipline such as environmental assessment.
- guarantees (garanties)
Guarantees of the Government include:
- Guarantees of the borrowings and certain loans of agent enterprise Crown corporations and other government business enterprises;
- Guarantees, either collective or specific, of the loans of certain individuals and companies obtained from the private sector;
- Insurance programs of the government; and
- Other explicit guarantees.
- insurance program (régime d'assurance)
- Is a program of insurance administered by or for the government in which premiums are collected and deposited into the Consolidated Revenue Fund (CRF) and in which payments are made out of the CRF in satisfaction of claims. The insurance program is available to outside interested parties who qualify under the program.
- management practices and controls (pratiques et contrôles de gestion)
- Are policies, processes, procedures and systems that enable a department to operate its programs and activities, use its resources effectively, exercise sound stewardship, fulfill its obligations and achieve its objectives.